Coronavirus – bitter ironies, anxious disclosures

Many commentators have noted how the collective response to the ongoing coronavirus outbreak, for all its imperfections, demonstrates a sense of purpose and ruthlessness entirely missing from the “fight” against climate change…

You might choose to see some cause for hopefulness in there – that is, we’ve shown we can do it once, so maybe we can do it again. But it seems to me, sadly, that the current crisis reduces the prospects for such action more than it increases them. One of the grim ironies is that many of the dramatic steps being taken, particularly in curtailing air travel and thereby pounding the airline and fossil fuel industries, seem to be consistent with, if not urgently required under, any worthwhile future effort to save the planet. In a different world, we might grudgingly accept that it was all necessary anyway, and define this as the beginning of a new normal. But instead, you get this kind of thing:

  • The U.S. airline industry on Monday asked the government to provide as much as $60 billion in grants and loans, though it is unclear how much Trump will sign on for, according to a person familiar with the matter. The administration is most likely to approve loans, but the Office of Management and Budget has yet to be asked to provide cost estimates, the person said.

(At least as far I’m aware at the time of writing, the fossil fuel industries had yet to come begging).

It’s most likely, once the present economic retrenchment levels out, that the hunger to rebuild balance sheets and stock portfolios will mean that longer-term sustainability issues receive less rather than more attention (the mindset being that as we’ve just been through one crisis, we lack the appetite for another). Maybe with time this will prove to be the virus’ most insidious legacy.

Anyway, we previously discussed disclosure-related issues, and how the emergence of these events in early 2020 threatens to render the December 31, 2019 balance sheet (in which, in the great majority of cases, they won’t give rise to any adjusting events) largely obsolete as soon as it’s issued. Here’s an extract from the subsequent events note of Oryx Petroleum Corporation Limited:

  • …global oil prices have fallen by approximately 50% since December 31, 2019. The decline was due to in part to the global outbreak of the COVID-19 virus and to the commercial and geopolitical conflicts among major oil producers. Although it is not possible to reliably estimate the length or severity of these developments, and hence their financial impact, if oil prices remain at or below currently prevailing levels for an extended period of time, this could have a significant adverse impact on our financial results for future periods.

That’s the very last item in the financial statements, but arguably among the most significant, in terms of understanding their ongoing utility (not that any tuned-in user would have needed to be told, I suppose…)

Another suitable place to address the issue might be an “outlook” section of the MD&A or similar document. Here’s an example from NFI Group Inc. (“one of the world’s largest independent bus and coach manufacturers with operations in 10 countries”) which, at least on the face of it, seems to reasonably balance openness and concision, while avoiding the dreaded “boilerplate”:

  • NFI is closely monitoring the COVID-19 virus outbreak and while NFI is experiencing some supply delays, the virus has not materially impacted NFI’s production operations nor has the Company experienced any adverse impact on delivery of our products. Additional supply delays and possible shortages of critical components may arise if the disruption of certain suppliers’ operations and/or subcomponent supply from China or elsewhere continue or escalate. Such occurrences or negative impacts of the outbreak on customer demand for our products could potentially have a material adverse effect on NFI’s operations. NFI is monitoring the dynamic situation and actively assessing supply alternatives and developing appropriate mitigation plans. Given that it is nearly impossible to accurately forecast the impact of COVID-19 on NFI, the Company has not included any adjustment related to it in the 2020 guidance or other outlook information contained in the MD&A.
  • To date, COVID-19 has not caused any delays or reductions in planned vehicle deliveries but could potentially have an impact on our end-customers. While every operator is different, they are all focused on continuing to offer a clean and safe experience for their customers. If the virus continues to spread and prevention policies are escalated there could potentially be an impact on travel of customer inspectors which could impact NFI’s new build or bus/coach delivery and acceptance programs. There could also be an impact of lower ridership for operators, which could decrease demand for new and pre-owned vehicles.

More to come on this topic, I’m afraid. Please stay well and hopeful.

The opinions expressed are solely those of the author

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